VW shares skidded 5.1 percent lower at the start of trade to an intraday low of 107.00 euros after US regulators had accused it late Monday of fitting illegal "defeat devices" into its larger 3.0 litre diesel engines.
The share price pared losses by mid-afternoon, trading 2.9 percent lower on the day at 1330 GMT.
In an affair that has rocked the automobile sector around the world since it broke in September, the carmaker has already admitted using the software, which skews the results of pollution tests, in smaller 2.0 litre diesels in some 11 million cars worldwide.
But the US Environmental Protection Agency said late Monday it had discovered that various six-cylinder 3.0 litre diesel VW Touareg, Porsche Cayenne and Audis were also rigged with the software.
"We have clear evidence of these additional violations," said Cynthia Giles, an official with the EPA's Enforcement and Compliance Assurance office.
"VW has once again failed its obligation to comply with the law that protects clean air for all Americans," she said.
VW denies new allegations
VW, the world's number two carmaker by sales, denied the new charges.
"Volkswagen AG wishes to emphasise that no software has been installed in the 3-litre V6 diesel power units to alter emissions characteristics in a forbidden manner," it said in a statement.
"Volkswagen will cooperate fully with the EPA (to) clarify this matter in its entirety."
VW's luxury sports car unit Porsche similarly denied the allegations, insisting that "all of our information was that the Porsche Cayenne Diesel is fully compliant".
Audi, another of VW's high-end brands, insisted that the software installed in its engines were "in line with the law".
It argued that the so-called Auxiliary Emission Control Devices (AECD) fitted into its engines were not designed to cheat pollution tests, but maximise the engine's performance under different driving conditions.
Carmakers were allowed to fit AECDs into cars in the US as long as they kept the authorities informed once a year, a spokesman explained.
In terms of image, the scandal is turning into a veritable car crash for a company long seen an emblem of Germany's industrial might.
Already one chief executive of the company, Martin Winterkorn, has lost his job, and shares of the giant have shed nearly one-third of their value since the scandal erupted.
The new US notice of violation, for the larger-engined cars, could weigh on Winterkorn's replacement, Matthias Müller, who was elevated from running VW's Porsche subsidiary. At the time of his promotion, Porsche vehicles were not known to have the defeat devices.
Moreover, the first notice of violation on September 18, which kicked off the scandal, made clear that from the EPA alone, the company was facing a potential $18 billion in fines, based on the maximum allowed per vehicle and the half-million US-sold cars covered.
There are also a number of owner lawsuits against the company, and it could be hit with fines in other countries and regions as well.
Chancellor Angela Merkel, speaking to the BDI industry federation in Berlin, was adamant that the affair would not tarnish Germany's pristine engineering image.
"But we must insist on transparency and a rapid investigation," she said.
"And my assumption is that those involved will do that."
The US House of Representatives' Energy and Commerce Committee, which has opened a probe into the emissions scandal, said the new allegations meant "it's time for Volkswagen to fully come clean".
"The EPA expanding its investigation prompts questions regarding the prevalence of the emissions cheating and how it went undetected for so long," committee leaders said in a statement.
The scandal is clearly taking a toll on Volkswagen's finances.
Last week, the company booked its first quarterly loss in more than 15 years as it set aside €6.7 billion to cover the initial costs of the scandal.
Chief financial officer Frank Witter warned of further "considerable financial charges" from the emissions case.
It was "far too early to calculate the cost of any legal measures," Witter said. "The financial burden will be enormous, but manageable."